Definition
An arbitrage bot is an automated system that identifies and acts on price discrepancies for the same cryptocurrency across different trading venues. It is designed to implement arbitrage strategies at machine speed, monitoring order books and executing trades without manual intervention. In crypto markets, these bots commonly operate across centralized exchanges, often referred to as CEX, and may also interact with other types of venues depending on their design.
As a concept, an arbitrage bot encapsulates the logic, rules, and infrastructure needed to systematically capture small, temporary mispricings. It focuses on rapid decision-making and execution rather than discretionary trading or long-term investment. The bot’s core purpose is to convert short-lived price gaps into realized profit while maintaining strict, predefined parameters around trade size, timing, and market conditions.
Context and Usage
In the context of crypto trading, arbitrage bots are associated with the broader idea of arbitrage, where traders seek risk-limited profit opportunities from inconsistent pricing. They are particularly relevant in fragmented markets where the same asset can trade at different prices on separate CEX platforms. The concept emphasizes automation as a response to the speed and volume of data in modern markets, where manual arbitrage is often too slow.
Arbitrage bots are typically discussed in relation to market efficiency, liquidity, and competition among traders. Their presence can contribute to narrowing price gaps between venues as they repeatedly act on discrepancies. As a conceptual tool, they illustrate how algorithmic trading transforms arbitrage from an occasional manual activity into a continuous, systematic process embedded in crypto market structure.